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International Trade and Finance Practice Questions AP Economics Mr. Bordelon.

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1 International Trade and Finance Practice Questions AP Economics Mr. Bordelon

2 When the dollar value of the euro is high: a.Travel in the U.S. is less expensive for Europeans. b.Travel in the U.S. is more expensive for Europeans. c.The dollar has appreciated. d.Travel in Europe is less expensive for Americans. e.The euro has depreciated.

3 When the dollar value of the euro is high: a.Travel in the U.S. is less expensive for Europeans. b.Travel in the U.S. is more expensive for Europeans. c.The dollar has appreciated. d.Travel in Europe is less expensive for Americans. e.The euro has depreciated.

4 When a Japanese investor buys stock in General Motors, which of the following balance of payments accounts is affected? a.Current account b.Financial account c.Reserve account d.Foreign exchange account e.Balance of trade account

5 When a Japanese investor buys stock in General Motors, which of the following balance of payments accounts is affected? a.Current account b.Financial account c.Reserve account d.Foreign exchange account e.Balance of trade account

6 If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the current account is: a.$250 billion. b.-$250 billion. c.$50 billion. d.-$50 billion. e.$350 billion.

7 If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the current account is: a.$250 billion. b.-$250 billion. c.$50 billion. d.-$50 billion. e.$350 billion.

8 Assume that Tom sells a crate of Florida-grown oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarities between these two transactions? a.Only Tom will actually receive U.S. dollars as a result of this transaction. b.The sale of the bond to the customer in Britain creates a liability, while the sale of the oranges does not. c.Both sales create an asset for the United States. d.Both sales create a liability for the United States. e.Tom’s transaction will appear in the financial account and Sarah’s transaction will appear on the current account.

9 Assume that Tom sells a crate of Florida-grown oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarities between these two transactions? a.Only Tom will actually receive U.S. dollars as a result of this transaction. b.The sale of the bond to the customer in Britain creates a liability, while the sale of the oranges does not. c.Both sales create an asset for the United States. d.Both sales create a liability for the United States. e.Tom’s transaction will appear in the financial account and Sarah’s transaction will appear on the current account.

10 Which of the following would be included in the U.S. financial account? a.A computer made in the U.S. exported to Britain. b.A computer made in Britain imported into the United States. c.Interest on a U.S. company’s bond sold to someone living overseas. d.The value of a bond of a company in the United States sold to someone living in Britain. e.Wages paid by a company in the United States to an employee living in Britain.

11 Which of the following would be included in the U.S. financial account? a.A computer made in the U.S. exported to Britain. b.A computer made in Britain imported into the United States. c.Interest on a U.S. company’s bond sold to someone living overseas. d.The value of a bond of a company in the United States sold to someone living in Britain. e.Wages paid by a company in the United States to an employee living in Britain.

12 This question refers to the accounting for U.S. international transactions. Suppose that a family from Peru eats in a restaurant in Salt Lake City, Utah. Which of the following best indicates the account which this transaction would appear and how it would appear in that account? a.Current account; payments from foreigners b.Current account; payments to foreigners c.Financial account; payments from foreigners d.Financial account; payments to foreigners e.Current account; payment to foreign governments

13 This question refers to the accounting for U.S. international transactions. Suppose that a family from Peru eats in a restaurant in Salt Lake City, Utah. Which of the following best indicates the account which this transaction would appear and how it would appear in that account? a.Current account; payments from foreigners b.Current account; payments to foreigners c.Financial account; payments from foreigners d.Financial account; payments to foreigners e.Current account; payment to foreign governments

14 American retailers import toys from China. In the U.S. balance of payments account, this transaction would be entered as: a.A payment to foreigners in the financial account. b.A payment from foreigners in the financial account. c.A payment to foreigners in the current account. d.A payment from foreigners in the current account. e.A payment from foreigners in the net export account.

15 American retailers import toys from China. In the U.S. balance of payments account, this transaction would be entered as: a.A payment to foreigners in the financial account. b.A payment from foreigners in the financial account. c.A payment to foreigners in the current account. d.A payment from foreigners in the current account. e.A payment from foreigners in the net export account.

16 A Brazilian bank buys shares of stock in Intel, an American high-tech company. In the U.S. balance of payments, this transaction would cause the balance on the ____ account to ____. a.Current; decrease b.Current; increase c.Financial; decrease d.Financial; increase e.Import/export account; decrease

17 A Brazilian bank buys shares of stock in Intel, an American high-tech company. In the U.S. balance of payments, this transaction would cause the balance on the ____ account to ____. a.Current; decrease b.Current; increase c.Financial; decrease d.Financial; increase e.Import/export account; decrease

18 At an interest rate of 4%, the quantity of loanable funds demanded by American borrowers is _____ the quantity of loanable funds supplied by American lenders. a.Greater than b.Less than c.Equal to d.Not related to e.Rising to equal

19 At an interest rate of 4%, the quantity of loanable funds demanded by American borrowers is _____ the quantity of loanable funds supplied by American lenders. a.Greater than b.Less than c.Equal to d.Not related to e.Rising to equal

20 At an interest rate of 4%, the quantity of loanable funds supplied by British lenders is _____ the quantity of loanable funds demanded by British borrowers. a.Greater than b.Less than c.Equal to d.Not related to e.Rising to equal

21 At an interest rate of 4%, the quantity of loanable funds supplied by British lenders is _____ the quantity of loanable funds demanded by British borrowers. a.Greater than b.Less than c.Equal to d.Not related to e.Rising to equal

22 At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers. a.American; British b.British; American c.American or British; British or American d.American; worldwide e.Worldwide; American

23 At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers. a.American; British b.British; American c.American or British; British or American d.American; worldwide e.Worldwide; American

24 Interest rates between two countries tend to converge if: a.Both countries have a financial account surplus. b.Both countries have a current account surplus. c.The residents of the two countries believe that a foreign asset is as good as a domestic one. d.The residents of the two countries prefer their assets to foreign assets. e.The residents of the two countries prefer foreign assets to their assets.

25 Interest rates between two countries tend to converge if: a.Both countries have a financial account surplus. b.Both countries have a current account surplus. c.The residents of the two countries believe that a foreign asset is as good as a domestic one. d.The residents of the two countries prefer their assets to foreign assets. e.The residents of the two countries prefer foreign assets to their assets.

26 If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and the U.S. interest rate is 5% and the Japanese interest rate is 2%, then all of the following will occur EXCEPT: a.Financial inflows will reduce the U.S. interest rate. b.Financial outflows will increase the Japanese interest rate. c.The interest rate gap between the United States and Japan will be eliminated. d.Loanable funds will be exported form the U.S. to Japan. e.The interest rate in the United States will equal the interest rate in Japan.

27 If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and the U.S. interest rate is 5% and the Japanese interest rate is 2%, then all of the following will occur EXCEPT: a.Financial inflows will reduce the U.S. interest rate. b.Financial outflows will increase the Japanese interest rate. c.The interest rate gap between the United States and Japan will be eliminated. d.Loanable funds will be exported form the U.S. to Japan. e.The interest rate in the United States will equal the interest rate in Japan.

28 Suppose that the value of the euro fell from $1.47 on January 1, 2009 to $1.40 on January 12, This implies that: a.The Euro depreciated and the dollar appreciated during this period of time. b.The dollar depreciated and the euro appreciated during this period of time. c.The euro depreciated and there is insufficient information about the dollar’s value during this period of time. d.The euro appreciated and there is insufficient information about the dollar’s value during this period of time. e.Both the euro and dollar appreciated during this period of time.

29 Suppose that the value of the euro fell from $1.47 on January 1, 2009 to $1.40 on January 12, This implies that: a.The Euro depreciated and the dollar appreciated during this period of time. b.The dollar depreciated and the euro appreciated during this period of time. c.The euro depreciated and there is insufficient information about the dollar’s value during this period of time. d.The euro appreciated and there is insufficient information about the dollar’s value during this period of time. e.Both the euro and dollar appreciated during this period of time.

30 If the rate of exchange is 1€ = US$2, then US$1 = a.0.50€ b.2€ c.$0.50 d.$1.00 e.1.50€

31 If the rate of exchange is 1€ = US$2, then US$1 = a.0.50€ b.2€ c.$0.50 d.$1.00 e.1.50€

32 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. The euro has: a.Depreciated. b.Appreciated. c.Been devalued. d.Not been affected for use in international trade. e.Fallen in value relative to the dollar.

33 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. The euro has: a.Depreciated. b.Appreciated. c.Been devalued. d.Not been affected for use in international trade. e.Fallen in value relative to the dollar.

34 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. The exchange rate for the dollar has changed from: a.0.25€ to 0.50€. b.1.25€ to 1.50€. c.0.80€ to 0.67€. d.0.67€ to 0.80€. e.1€ to 2€.

35 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. The exchange rate for the dollar has changed from: a.0.25€ to 0.50€. b.1.25€ to 1.50€. c.0.80€ to 0.67€. d.0.67€ to 0.80€. e.1€ to 2€.

36 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. In Germany, exports to the U.S.: a.Will increase, and imports from the U.S. will decrease. b.And imports from the U.S. will increase. c.Will decrease, and imports from the U.S. will increase. d.And imports form the U.S. will decrease. e.Will be unaffected while imports from the U.S. will fall.

37 The value of a euro, the currency for most of Europe goes from 1€ = US$1.25 to 1€ = US$1.50. In Germany, exports to the U.S.: a.Will increase, and imports from the U.S. will decrease. b.And imports from the U.S. will increase. c.Will decrease, and imports from the U.S. will increase. d.And imports form the U.S. will decrease. e.Will be unaffected while imports from the U.S. will fall.

38 If the value of a U.S. dollar changes from ¥120 to ¥110, it follows that: a.The Japanese yen is depreciated, and the U.S. dollar is appreciating. b.U.S. goods become cheaper for Japanese consumers to purchase. c.Japanese goods become cheaper for U.S. consumers to purchase. d.U.S. services become more expensive for Japanese firms to purchase. e.U.S. exports to Japan will fall.

39 If the value of a U.S. dollar changes from ¥120 to ¥110, it follows that: a.The Japanese yen is depreciated, and the U.S. dollar is appreciating. b.U.S. goods become cheaper for Japanese consumers to purchase. c.Japanese goods become cheaper for U.S. consumers to purchase. d.U.S. services become more expensive for Japanese firms to purchase. e.U.S. exports to Japan will fall.

40 If the U.S. dollar changes from $1 = ¥200 to $1 = ¥100, then: a.The dollar has depreciated relative to the yen. b.The dollar has been fixed by the United States and Japan. c.The dollar has appreciated relative to the yen. d.U.S. goods are now more expensive in Japan. e.Japanese goods are now less expensive in the United States.

41 If the U.S. dollar changes from $1 = ¥200 to $1 = ¥100, then: a.The dollar has depreciated relative to the yen. b.The dollar has been fixed by the United States and Japan. c.The dollar has appreciated relative to the yen. d.U.S. goods are now more expensive in Japan. e.Japanese goods are now less expensive in the United States.

42 If the U.S. dollar depreciates, all other things being equal, then: a.The U.S. financial account is in surplus. b.The U.S. financial account is in deficit. c.It falls in value compared to some other currency. d.The U.S. current account is in deficit. e.Imports from other nations will fall.

43 If the U.S. dollar depreciates, all other things being equal, then: a.The U.S. financial account is in surplus. b.The U.S. financial account is in deficit. c.It falls in value compared to some other currency. d.The U.S. current account is in deficit. e.Imports from other nations will fall.

44 The change from D1 to D2 would occur, all things being equal, if the: a.Supply of euros decreases. b.Demand for euros increases. c.Demand for euros decreases. d.Demand for dollars increases. e.Demand for dollars decreases.

45 The change from D1 to D2 would occur, all things being equal, if the: a.Supply of euros decreases. b.Demand for euros increases. c.Demand for euros decreases. d.Demand for dollars increases. e.Demand for dollars decreases.

46 A flow of capital from Europe to the United States would cause a movement in this foreign exchange market that is best represented by the shift from: a.D2 to D1. b.E2 to E1. c.D1 to D2. d.There would be no shift in the foreign exchange market. e.X2 to X1.

47 A flow of capital from Europe to the United States would cause a movement in this foreign exchange market that is best represented by the shift from: a.D2 to D1. b.E2 to E1. c.D1 to D2. d.There would be no shift in the foreign exchange market. e.X2 to X1.

48 Suppose that the U.S. and European Union (EU) are the only trading partners in the world. If the EU imposes some import tariffs on U.S. goods, we would expect: a.The supply of the euro to decrease, depreciating the euro. b.The demand for the dollar to decrease, depreciating the dollar. c.The demand for the dollar to increase, appreciating the dollar. d.The supply of the dollar to decrease, depreciating the dollar. e.The demand for the dollar to decrease, appreciating the dollar.

49 Suppose that the U.S. and European Union (EU) are the only trading partners in the world. If the EU imposes some import tariffs on U.S. goods, we would expect: a.The supply of the euro to decrease, depreciating the euro. b.The demand for the dollar to decrease, depreciating the dollar. c.The demand for the dollar to increase, appreciating the dollar. d.The supply of the dollar to decrease, depreciating the dollar. e.The demand for the dollar to decrease, appreciating the dollar.

50 If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports: a.And exports will both increase. b.And exports will both decrease. c.Will decrease and exports will increase. d.Will increase and exports will decrease. e.Will be unchanged, while exports will decrease.

51 If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports: a.And exports will both increase. b.And exports will both decrease. c.Will decrease and exports will increase. d.Will increase and exports will decrease. e.Will be unchanged, while exports will decrease.

52 In the United States-Mexican peso foreign exchange market, the dollar market is initially in equilibrium. Suppose there is a decrease in demand for U.S. dollars, holding everything else constant, this will result in: a.A movement along the supply of U.S. dollars and an increase in the peso-U.S. dollar exchange rate. b.A movement along the demand for U.S. dollars and an increase in the peso-dollar exchange rate. c.A movement along the supply of U.S. dollars and a decrease in the peso-U.S. dollar exchange rate. d.A movement along the demand for U.S. dollars and a decrease in the peso-U.S. dollar exchange rate. e.A movement along the demand for U.S. dollars and no change in the peso-U.S. dollar exchange rate.

53 In the United States-Mexican peso foreign exchange market, the dollar market is initially in equilibrium. Suppose there is a decrease in demand for U.S. dollars, holding everything else constant, this will result in: a.A movement along the supply of U.S. dollars and an increase in the peso-U.S. dollar exchange rate. b.A movement along the demand for U.S. dollars and an increase in the peso-dollar exchange rate. c.A movement along the supply of U.S. dollars and a decrease in the peso-U.S. dollar exchange rate. d.A movement along the demand for U.S. dollars and a decrease in the peso-U.S. dollar exchange rate. e.A movement along the demand for U.S. dollars and no change in the peso-U.S. dollar exchange rate.

54 Purchasing power parity refers to: a.How many units of foreign currency a dollar will buy. b.How many foreign assets the United States is buying. c.How many foreign assets a foreign country is buying. d.The nominal exchange rate for which a market basket would cost the same in each country. e.How many dollars a unit of a foreign currency will buy.

55 Purchasing power parity refers to: a.How many units of foreign currency a dollar will buy. b.How many foreign assets the United States is buying. c.How many foreign assets a foreign country is buying. d.The nominal exchange rate for which a market basket would cost the same in each country. e.How many dollars a unit of a foreign currency will buy.

56 Assume that the foreign exchange market is trading the domestic currency at an exchange rate (U.S. dollars per unit of the domestic currency) above the exchange rate fixed by the government. To maintain the fixed exchange rate, the government must: a.Decrease foreign exchange reserves. b.Lower the domestic interest rate. c.Facilitate the domestic purchase of foreign financial assets. d.Raise the domestic interest rate. e.Petition the World Bank for permission.

57 Assume that the foreign exchange market is trading the domestic currency at an exchange rate (U.S. dollars per unit of the domestic currency) above the exchange rate fixed by the government. To maintain the fixed exchange rate, the government must: a.Decrease foreign exchange reserves. b.Lower the domestic interest rate. c.Facilitate the domestic purchase of foreign financial assets. d.Raise the domestic interest rate. e.Petition the World Bank for permission.

58 Refer to panel (a). Which of the following approaches could the Genovian government use to raise the value of the geno above its present equilibrium exchange rate and into the target range? a.Use its own currency to buy U.S. dollars. b.Shift the demand for genos to the right by raising interest rates in Genovia. c.Eliminate the exchange controls that presently limit the right of Genovian citizens to buy U.S. dollars. d.Tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens. e.Shift the demand for genos to the left by lowering interest rates in Genovia.

59 Refer to panel (a). Which of the following approaches could the Genovian government use to raise the value of the geno above its present equilibrium exchange rate and into the target range? a.Use its own currency to buy U.S. dollars. b.Shift the demand for genos to the right by raising interest rates in Genovia. c.Eliminate the exchange controls that presently limit the right of Genovian citizens to buy U.S. dollars. d.Tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens. e.Shift the demand for genos to the left by lowering interest rates in Genovia.

60 Refer to panel (b). Which of the following approaches could the Genovian government use to decrease the value of the geno below its present equilibrium exchange rate and into the target range? a.Use its own currency to buy U.S. dollars. b.Shift the demand for genos to the right by raising interest rates in Genovia. c.Eliminate the exchange controls that presently limit the right of Genovian citizens to buy U.S. dollars. d.Tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens. e.Shift the demand for genos to the left by lowering interest rates in Genovia.

61 Refer to panel (b). Which of the following approaches could the Genovian government use to decrease the value of the geno below its present equilibrium exchange rate and into the target range? a.Use its own currency to buy U.S. dollars. b.Shift the demand for genos to the right by raising interest rates in Genovia. c.Eliminate the exchange controls that presently limit the right of Genovian citizens to buy U.S. dollars. d.Tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens. e.Shift the demand for genos to the left by lowering interest rates in Genovia.

62 Foreign exchange controls are: a.Fixed exchange rates. b.A government licensing system that limits the amount of foreign currencies an individual can buy. c.Floating exchange rates. d.International limits on exchange rates. e.Treaties with the World Bank to fix the exchange rate.

63 Foreign exchange controls are: a.Fixed exchange rates. b.A government licensing system that limits the amount of foreign currencies an individual can buy. c.Floating exchange rates. d.International limits on exchange rates. e.Treaties with the World Bank to fix the exchange rate.

64 In a fixed exchange rate situation, monetary policy is: a.Fully flexible. b.Limited in its ability to shift aggregate demand to the right. c.Limited in its ability to shift aggregate supply to the right. d.Independent of exchange rate issues. e.Made irrelevant as a policy tool.

65 In a fixed exchange rate situation, monetary policy is: a.Fully flexible. b.Limited in its ability to shift aggregate demand to the right. c.Limited in its ability to shift aggregate supply to the right. d.Independent of exchange rate issues. e.Made irrelevant as a policy tool.

66 If a government wants to increase the value of its currency in foreign exchange markets, it can: a.Use contractionary monetary policy. b.Use expansionary monetary policy. c.Decrease interest rates. d.Sell its currency. e.Allow the aggregate price level to rise.

67 If a government wants to increase the value of its currency in foreign exchange markets, it can: a.Use contractionary monetary policy. b.Use expansionary monetary policy. c.Decrease interest rates. d.Sell its currency. e.Allow the aggregate price level to rise.

68 A revaluation makes: a.Domestic goods cheaper relative to foreign goods. b.Foreign goods more expensive. c.Both domestic and foreign goods more expensive. d.Domestic goods more expensive relative to foreign goods. e.The trade deficit shrink.

69 A revaluation makes: a.Domestic goods cheaper relative to foreign goods. b.Foreign goods more expensive. c.Both domestic and foreign goods more expensive. d.Domestic goods more expensive relative to foreign goods. e.The trade deficit shrink.

70 When the Mexican government changes the fixed exchange rate of the peso relative to the U.S. dollar from 1.5 (pesos/U.S. dollar) to 3.0 (pesos/U.S. dollar), the peso is _____. When the foreign exchange market changes the equilibrium exchange rate of the euro relative to the U.S. dollar from 1.15 (U.S. dollars/euro) to 1.30 (U.S. dollars/euro), the euro is _____. a.Revaluated; appreciated b.Appreciated; devaluated c.Devaluated; depreciated d.Appreciated; revaluated e.Devaluated; appreciated

71 When the Mexican government changes the fixed exchange rate of the peso relative to the U.S. dollar from 1.5 (pesos/U.S. dollar) to 3.0 (pesos/U.S. dollar), the peso is _____. When the foreign exchange market changes the equilibrium exchange rate of the euro relative to the U.S. dollar from 1.15 (U.S. dollars/euro) to 1.30 (U.S. dollars/euro), the euro is _____. a.Revaluated; appreciated b.Appreciated; devaluated c.Devaluated; depreciated d.Appreciated; revaluated e.Devaluated; appreciated

72 A revaluation: a.Increases exports and decreases imports. b.Decreases exports and increases imports. c.Increases imports and exports. d.Decreases imports and exports. e.Has no impact on imports or exports.

73 A revaluation: a.Increases exports and decreases imports. b.Decreases exports and increases imports. c.Increases imports and exports. d.Decreases imports and exports. e.Has no impact on imports or exports.

74 An increase in U.S. interest rates causes a decrease in aggregate demand by: a.Increasing investment, appreciating the dollar, and increasing imports. b.Decreasing investment, appreciating the dollar, and increasing imports. c.Increasing investment, depreciating the dollar, and increasing exports. d.Decreasing investment, depreciating the dollar, and decreasing exports. e.Decreasing investment, depreciating the dollar, and increasing exports.

75 An increase in U.S. interest rates causes a decrease in aggregate demand by: a.Increasing investment, appreciating the dollar, and increasing imports. b.Decreasing investment, appreciating the dollar, and increasing imports. c.Increasing investment, depreciating the dollar, and increasing exports. d.Decreasing investment, depreciating the dollar, and decreasing exports. e.Decreasing investment, depreciating the dollar, and increasing exports.

76 Expansionary monetary policy in the United States causes U.S. interest rates to _____ and the dollar to _____. a.Increase; appreciate b.Increase; depreciate c.Decrease; appreciate d.Decrease; depreciate e.Decrease; remain constant in value

77 Expansionary monetary policy in the United States causes U.S. interest rates to _____ and the dollar to _____. a.Increase; appreciate b.Increase; depreciate c.Decrease; appreciate d.Decrease; depreciate e.Decrease; remain constant in value

78 Devaluation is the: a.Reduction in the value of a currency due to inflation. b.Reduction in the value of a currency that is determined in a floating exchange rate system. c.Reduction in the value of a currency due to increased interest rates. d.Reduction in the rate of inflation of a country. e.Reduction in the value of a currency that is set under a fixed exchange rate regime.

79 Devaluation is the: a.Reduction in the value of a currency due to inflation. b.Reduction in the value of a currency that is determined in a floating exchange rate system. c.Reduction in the value of a currency due to increased interest rates. d.Reduction in the rate of inflation of a country. e.Reduction in the value of a currency that is set under a fixed exchange rate regime.

80 The difference between a fixed exchange rate regime and a floating exchange rate regime, is that: a.Under a fixed exchange rate regime, the central bank retains its ability to pursue independent monetary policy, whereas under a floating exchange rate regime, it does not. b.Under a floating exchange rate regime, the central bank retains its ability to pursue independent monetary policy, whereas under a fixed exchange rate regime, it does not. c.Under a fixed exchange rate regime, the government can pursue independent fiscal policy, whereas under a floating exchange rate regime, it does not. d.Under a floating exchange rate regime, the government can pursue independent fiscal policy, whereas under a fixed exchange rate regime, it does not. e.Under a floating exchange rate regime, the central bank retains its ability to pursue independent fiscal policy, whereas under a fixed exchange rate regime, it does not.

81 The difference between a fixed exchange rate regime and a floating exchange rate regime, is that: a.Under a fixed exchange rate regime, the central bank retains its ability to pursue independent monetary policy, whereas under a floating exchange rate regime, it does not. b.Under a floating exchange rate regime, the central bank retains its ability to pursue independent monetary policy, whereas under a fixed exchange rate regime, it does not. c.Under a fixed exchange rate regime, the government can pursue independent fiscal policy, whereas under a floating exchange rate regime, it does not. d.Under a floating exchange rate regime, the government can pursue independent fiscal policy, whereas under a fixed exchange rate regime, it does not. e.Under a floating exchange rate regime, the central bank retains its ability to pursue independent fiscal policy, whereas under a fixed exchange rate regime, it does not.

82 Adopting a floating exchange rate regime: a.Makes the domestic economy less susceptible to business cycles abroad. b.Limits the use of monetary policy for economic stabilization purposes. c.Makes the domestic economy more susceptible to business cycles abroad. d.Commits the country to maintaining low inflation rates. e.Makes fiscal policy obsolete for smoothing the business cycle.

83 Adopting a floating exchange rate regime: a.Makes the domestic economy less susceptible to business cycles abroad. b.Limits the use of monetary policy for economic stabilization purposes. c.Makes the domestic economy more susceptible to business cycles abroad. d.Commits the country to maintaining low inflation rates. e.Makes fiscal policy obsolete for smoothing the business cycle.


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